Wednesday 6 January 2010

Fallen angels?

Via Technology Transfer Tactics comes Marty Zwilling's "Eight Angel Investors to Avoid", a provocative little article from his Startup Professions Musings blog which might make some investors feel a little less comfortable about themselves -- though I doubt that many of them will be reading it. "Most angels are pure", he writes, "but there are some exceptions that may cost you more than an investment". Investors to watch out for are:
"Shark angels. This is the ultimate bad guy whose sole intention of getting involved in early-stage investing is to take advantage of what they believe is the entrepreneur’s lack of financial and deal-making experience. If the term sheet process turns to pure torture, it may be time to respectfully bow out [It might be too late at this point. It's worth asking for, and taking up references -- if any can be found -- from previous early-stage investments].

Litigious angels. The litigious investor will look for almost any excuse to take you to court. This type of investor never really focuses on the returns your company can deliver, but instead tries to make money by intimidation, threats and lawsuits. They know you won't have the resources to fight them, so they count on you "caving.” Keep your attorney close by your side [I never thought these existed till I had personal experience of one. They're sometimes difficult to detect, particularly at the early stages of their careers].

Superior angels. A number of successful business people, some of whom become angels, develop the belief that they are destined for greatness because of their clear superiority over everyone else. These are usually overbearing, negative people who are hypercritical of every decision you make. Don’t be intimidated into bad decisions [If you can't avoid them, try flattery or distraction ...].

Control freak angels. This angel starts out looking like your new best friend. Once you are funded, he waits until you hit your first pothole and then points out “gotcha” clauses in your agreement that give him more control. This escalates into a requirement that he must step in to run your company himself. Only your Board can save you here [Easy to avoid if you just keep missing those pot-holes].

Tutorial angels. The tutorial investor is not after control, but wants to hold your hand on every issue. The mentoring offer always sounds good up front. But after they write the check, it soon becomes apparent that their desire to be helpful 24 hours a day is a nuisance at best. Initially, your gratitude for their investment may prompt tolerance, but eventually the burden wears you down. Keeping your distance is the best solution [or ask for more advice, particularly if it involves market research and competitors' product development prospects, since that can wear them down].

Has-been angels. These tend to appear with every perturbation in the economy. They are usually high-flyers with a liquidity problem. They are still at the country club every day, but are now running up a tab. They will meet with you, and ask a thousand questions, but never get around to closing the deal. Learn to ask the closing questions [Closely related to Wannabe angels, whose habits are sometimes strikingly similar].

Dumb angels. Wealth is not synonymous with business savvy. You can spot dumb angels by the questions they ask (or don’t ask). If they ask superficial questions or don’t understand business, a successful long-term relationship is not likely. But don’t forget that people with wealth usually may have some savvy friends to meet [Careful, you might be in danger of taking them for a ride].

Brokers posing as angels. These people are all over the place, often posing as lawyers and accountants. They have little intent to invest in your company, and will eventually solicit you to sign a fee agreement to pay them to introduce you to actual investors. Brokers are often worth the fee, but don’t be misled about who is the angel [this category may overlap with Control Freak angels]".

No comments: